Wayne O'Leary

Amoral Corporations are the Real Scandal

There are scandals, and then there are scandals. At the moment,
the mass media are focused on the Jack Abramoff lobbying scandal, a
true disgrace to be sure, but one the likes of which come along every
couple of decades, involving basic political corruption. Political
scandals have a long and dishonored place in American history, with a
lineage that goes back to Teapot Dome in the 1920s and the Tweed Ring
in the 1870s; they are a regular feature of the governmental
landscape, and they arise from our chronic inability to divorce money
from politics.

The Abramoff scandal, a natural outgrowth of one-party rule in
the sense that absolute power corrupts absolutely, will evolve in due
course, taking down a substantial portion of the GOP congressional
membership and perhaps wending its way into the bowels of the Bush
administration. The related collapse of the "K Street Project," a
brazen attempt to make special-interest lobbyists (whose numbers have
doubled since 2001) an arm of the federal government in the service
of the Republican agenda, can only serve the public good; it will
expose the rottenness at the core of Washington's conservative
revolution and go some distance toward cleaning it up -- if only
temporarily.

Unfortunately, there is an even bigger scandal brewing that the
Abramoff investigations will not touch, and it involves not political
machinations, but corporate policy. The word scandal has broad
meaning. The Oxford English Dictionary calls it "a grossly
discreditable circumstance, event or condition of things" and an
"offense to moral feeling or sense of decency." By this definition,
nothing on the horizon is more genuinely scandalous than the
unraveling of the social compact between American business and its
workers, which is gaining momentum on an almost daily basis.

Beyond a paycheck, Americans have been accustomed, at least since
the Second World War, to depending on their private-sector employers
for two additional things -- health coverage and a retirement
pension -- the unspoken quid pro quo being hard work and company
loyalty. These traditional job benefits are now seriously at risk,
put there by a mad pursuit of profit that is rationalized by the
supposed need to remain "competitive" in a globalized economy. Worse,
their imperilment has been consciously permitted by an administration
and Congress disposed to excuse the perpetrators or ignore the
problem altogether.

Corporations started phasing out defined-benefit (DB) pensions as
a cost-saving measure around 1985, barring new employees from
participation and shifting them instead to the unpredictable
quasi-pensions known as defined contribution plans (the infamous
401(k)s). They subsequently began freezing DB pensions for longtime
employees, gradually forcing them into 401(k)s as well, a trend that
has accelerated in recent years, with half of all US firms signing on
in the past decade. The upshot is that while three-quarters of
American companies still have lingering DB-fund obligations
outstanding on their books, only 13% of currently active workers
actually have DB pensions, down from 60% in the 1970s.

What's more, the DB pensions remaining to be paid out are at risk
from "underfunding." That is, they are not backed by sufficient
monies to cover them, because firms willfully neglected to put aside
the necessary funds in a timely fashion. (They apparently had better
uses for the money.) At last calculation, the federal Pension Benefit
Guarantee Corporation estimated the underfunding at $450 billion, or
32% of combined liabilities.

Job-related health plans, especially those for current or future
retirees, are in a similar fix. Credit Suisse First Boston, which
monitors them, says that 80% of these plans are underfunded -- to
the tune of $300 billion. Pension liabilities can be legally avoided
only by firms declaring Chapter 11 bankruptcy, an expedient numerous
companies have resorted to recently. Health plans, on the other hand,
have no federal funding requirement and can be arbitrarily canceled
at any time. Whereas 69% of employers were providing medical coverage
in 2000, just 60% are still doing so today.

Naturally, the irresponsible corporate citizens who are cutting
or eliminating pensions and health coverage have a rationale. It's
all about globalization (the globalization corporate America
championed), they say. They must cut costs to remain viable in the
world market, they argue. To hear America's cash-flush corporations
-- the Fortune 500 had a record $514 billion in combined profits in
2004 -- tell it, they are nearly on the rocks, and it is their
overly generous "legacy costs" that are to blame. It sounds
plausible, but it's not. In truth, the rending of the private-sector
safety net is a classic tale of mismanagement and greed.

Underfunding of pension and health plans, a result of neglected
company contributions, unprofessional accounting methods and
excessive investment of funds in the volatile stock market rather
than the safer bond market, is bad enough; it represents a clear
breakdown in fiduciary responsibility. Outright abandonment of health
plans and cost-shifting replacement of real pensions with faux
pensions that are really risky investment vehicles is worse: It's a
pure management money-grab lacking even the pathetic excuse of
administrative incompetence. Of six major corporations announcing an
end to traditional pensions within recent weeks (IBM, Motorola,
Lockheed Martin, Sears Roebuck, Hewlett-Packard and Verizon), only
one (Sears) is losing money. These companies are opting out of their
solemn promises not because they have to, but because they can.

There already exists a federal law meant to address pension
security. The Employee Retirement Income Security Act of 1974 (or
ERISA) requires obvious strengthening and/or better enforcement in
the area of underfunded pensions; it also needs crucial updating by
the addition of a new section mandating the provision of full,
lifetime DB pensions by all companies above a certain size. A similar
health insurance mandate is worth considering as well, but
persistent, uncontrolled inflation in medical costs, which affects
companies as well as individuals, suggests health coverage would be
best handled separate from employment and entirely outside the market
system, through a government-based national health insurance
program.

One way or another, the scandal of disappearing pensions and
health benefits, the real scandal of our time, has to be
rectified.